Investment commentaries

Weekly market updates

Insights for professional advisers

  • Weekly Update #6

    Published:
    15/02/2017
    Filesize:
    59Kb
    Filetype:
    PDF
    Japanese Prime Minister Shinzo Abe’s visit to the US buoyed investor sentiment in both US and Japanese markets. Yen weakness, Japan’s US trade surplus, and US military outlays in the Pacific were potential sources of friction between the leaders. President Trump, however, adopted a conciliatory tone, endorsing new trade talks in the wake of his withdrawal from TPP negotiations, and continuation of peaceful relations between the nations. He remained silent on usually prominent topics such as currency policy and protectionist measures.
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  • Weekly Update #5

    Published:
    08/02/2017
    Filesize:
    238Kb
    Filetype:
    PDF
    Donald Trump faced controversy this week when an executive order limiting travel to the US from certain Muslim countries and for refugees, ran into difficulties. The order met with disapproval from the international community, and was halted by a federal judge on legal grounds. While the legal dispute continues, this is the first clear example of Trump’s policies being constrained by the governmental system, and the checks and balances entailed therein.
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  • Weekly Update #4

    Published:
    31/01/2017
    Filesize:
    224Kb
    Filetype:
    PDF
    Donald Trump began his presidency with a flurry of activity, signing eight executive orders and four presidential memoranda in his first week. These included executive orders to advance the construction of a large physical barrier with Mexico and the construction of the Keystone XL and Dakota Access pipelines. While measures to expedite infrastructure and manufacturing projects have encouraged some observers, Trump’s protectionist and nativist agenda has raised concern.
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  • Weekly Update #3

    Published:
    25/01/2017
    Filesize:
    223Kb
    Filetype:
    PDF
    Markets consolidated this week, with major regions pulling back somewhat, with Sterling strength putting pressure on equity returns in GBP terms. Equities in Japan and the UK performed weakest, while the US was the most resilient market in GBP terms.
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  • Weekly Update #2

    Published:
    18/01/2017
    Filesize:
    224Kb
    Filetype:
    PDF
    2017 continues to see equities rally, with 2016’s prevailing investment trends persisting. Equities continued to strengthen across regions in GBP terms, boosted by GBP weakness. Emerging markets were the strongest region and the US the weakest.
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Investment Review
Month ending 31 January 2017

Markets

2017 got off to a constructive start, with the “reflation trade” favouring equities over bonds persisting.

In GBP terms, emerging market equities were the strongest performer (delivering +3.2%) followed by Japanese equities (+1.8%), which were helped by currency weakness. Europe and the US delivered +0.7% and +0.1% respectively in Sterling terms. The UK market was the laggard, falling -0.4%.

After bouncing in December, government bonds in main regions recommenced their decline in January, apart from in the US where they regained +0.3% in local currency terms. European government bonds suffered most, falling -2.1% in local currency terms, while Gilts were close behind, falling -1.8%.

Following a period of sustained strength, the US Dollar softened a little in January. As a result, Sterling gained +1.9% against USD, but slipped further versus JPY (-1.8%) and EUR (-0.7%).

Oil reversed some of December’s gains (-1.7%) while Gold rallied +5.8%.

Economic developments

Inflation measures showed greater divergence in December, with a sharp acceleration in the UK, US and Eurozone, and softer data in Asia. In the UK, Consumer Price Inflation (CPI) rose to 1.6% and in the US CPI rose to 2.1%. Eurozone harmonised CPI reached 1.1%

Q4 GDP measures showed improvement in the US (real year on year growth of 1.9%), with UK, China and the Eurozone a touch weaker.

US consumer confidence continued to rebound strongly in December, pulling back somewhat to 111.8 in January. Confidence also improved in December in Japan, Europe and the UK; though the UK’s January reading was a little weaker at -5.1, while Eurozone confidence continued to strengthen.

Purchasing managers' indices (PMIs) continued to strengthen in December; with composite measures up across all regions except the US, where the reading deteriorated modestly in December but strengthened strongly in January. The composite measure remains in expansionary territory in all regions.

Investment outlook

Looking ahead, we see reasons for optimism, though we remain cognizant of risks to growth, and event risks ahead.

Given the materially better outlook for growth, we are seeking to be positioned in order to benefit from a recovery in earnings growth, balanced with volatility reducing assets in case sentiment deteriorates.

By holding a well-diversified portfolio of asset classes and companies, we hope to balance long term stability with a cyclical uplift from better economic growth.

Stronger economic growth is supportive of equities – we have modestly increased our overweight allocation to this asset class.

High quality businesses able to deliver superior growth remain at the core of our portfolios. Given the better outlook for growth, we are balancing this with exposure to stocks that benefit from an economic uplift.

We have reduced our exposure to bonds as an asset class due to the likelihood of diminished scarcity value, a faster rate cycle and better economic growth prospects..

Better growth, higher interest rates and lower bond scarcity may also diminish the “reach for yield”, which has seen investors crowd into pockets of the market. We expect market performance looking forward to have greater breadth across sectors.

We have an overweight allocation to the US, and we expect the economy to benefit from the favourable fiscal and monetary policy mix. We have slightly increased our allocation to Europe and Japan; as both have many global companies at attractive valuations which we expect to benefit from an improvement in global growth.

At a sector level, we have increased our positions in sectors that should benefit more from a better growth outlook and potentially higher inflation, and also in those sectors that should benefit from specific policy measures (such as industrials, technology and defence). 

Investor insights

  • Investor Insight Winter 2017

    Published:
    09/02/2017
    Filesize:
    903Kb
    Filetype:
    PDF

    The outlook for global growth has improved over the last few months with inflation numbers also firming. Monetary policy remains generally accommodative but importantly expectations of increased use of fiscal policy are providing a spur to growth.

    Our base case for 2017 is for a fiscally elongated expansion, led by the US. Better US and global GDP growth should help corporate earnings catch up with share price and valuation increases.

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  • Investor Insight Autumn 2016

    Published:
    17/10/2016
    Filesize:
    1,109Kb
    Filetype:
    PDF

    Global growth stabilising, though growth rates remain subdued.

    Monetary policy remains accommodative – fiscal policy to loosen.

    We expect the current benign investment environment to continue.

    US election and ongoing ‘Brexit’ are potential near‑term risks.

    We expect a bias to ‘quality’ assets to perform well in coming months.

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